Is capitalism finished or has it just caught a nasty cold? This series of articles will argue the case for a different style of capitalism.

Monday, 9 August 2010

CEO Makes Suicidal Announcement?

From The Times – 6th August 2010

The culture of corporate short-termism was attacked by the chief executive of Unilever yesterday after the consumer products giant reported first-half results that failed to live up to City expectations.

Paul Polman said that the company had had to spend more on marketing in its fight to retain market share, with competitors cutting prices in a tough consumer environment. Against this backdrop, the company would have to pass on rising commodity costs.

The challenge will put profit margins under pressure, but Mr Polman indicated that he was not concerned if Unilever had a weak three months and margins fell, saying that, in an ideal world, the company would not even report quarterly figures.

“A lot of problems the world has found itself in are because people were chasing quarterly targets,” he said

He has scrapped profit forecasts and said that he has cared more about consumers than shareholders since starting his job about two years ago.

Mr Polman said that Unilever was making good progress on making the business more sustainable and environmentally sound, which he believes is starting to resonate with consumers, as well as motivating staff.

Mr Polman is right – but is this the best way for him to be communicating his message?.

And this difficulty in communication highlights what is wrong with the relationship between The City, and its following of financial journalists, and those that carry the responsibility for the actual stewardship of others’ fortunes.

What Mr Polman could have said is -

In the interest of shareholders, and all our stakeholders, we have managed to build a high level of Competitive Strength in our organisation. The resilience that this has delivered means that, despite the recent adverse external factors (as described above), we have maintained profitability and ensured both long term security, and the opportunity for future growth, of your investments.

In particular, we have set and maintained our sharp focus on our customers, one of the drivers of our Competitive Strength which has also enabled us to increase our environmental soundness, which I believe is starting to resonate with consumers, as well as motivating staff.

Our focus is on the long term generation of real wealth for our shareholders, employees, suppliers, customers, and communities. We will keep our eyes on this horizon knowing that, from time to time, short term reporting figures may not be welcomed by the tiny minority whose personal remuneration may depend on them. That is a problem for them to debate with their paymasters, and not to seek to disproportionately influence the fortunes of the other stakeholders in this and other vast enterprises. We are confident that our competence in the operation of our business is such that we will maintain and grow the Competitive Strength (profitability, market position, market leadership, growth and resilience) that will ensure the future, and not risk it by short term excursions from our path.

Unfortunately the concept of Competitive Strength is not widely understood.. If it were, then more CEO’s would be able to show the “Financial Experts” another, and perhaps less narrow, way of looking at their responsibilities. More plc leaders might then look upon their own role less as “Bookies’ Runner” for the instant profit seeking, greedy, gamblers in The City and more as “Bloodstock Breeders” of sustainable wealth for the communities and nations in which they trade.

Comparative Competitive Strength is the most certain indicator of long term financial success and sustainability. It can be measured rapidly and straightforwardly with less than two hours of working time and within a week.. The lessons and insights of that measurement can be understood and acted upon by a business leadership team within a working day. It really is that simple.

Possibly too simple for many who continue to rely on the Financial Analysis insights of those with strongly vested interests and short term objectives. Mr Polman is right. However, he should not expect those whose self importance he has so sharply punctured to be grateful – and it will be no consolation to him that many of them will not have understood what he is saying. Mr Polman, and other CEO's showing weak short term results, would have a stronger argument if they could objectively demonstrate long term Comparative Competitive Strength.

These are times that demand different thinking for different actions to get the different results that our economy so badly needs. Mr Polman has raised the banner – will others follow? Will the growth of outcome centred thinking start to over ride the task centred short termist attitudes that have limited business thinking and performance results for so long? Will Common Sense, as so elegantly embodied in the Achievement Process, cut through the tangles of managerial complexity that are frustrating excellence in so many organisations? It is time for a Revolution in UK Business. It is time for Simple Common Sense – the ideas are simple but the transition is not easy.

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